First Time Home Buyer's Guide
All the information to take in as a first time home buyer can be overwhelming to say the least. Our guide outlines the process for you.
The cost of buying a home
Earnest Money Deposit: 1%-3% of purchase price
This deposit is a show of good faith once you've signed an offer that you're intending to move forward with the purchase. This deposit is put toward your down payment.
Down Payment: 3%-20%+ of purchase price
One of the most common upfront expenses associated with purchasing a home, your down payment, is the amount of your home you're paying for upfront. Down payments can be as low as 3% for first-time buyers but tend to be around 20% of the purchase price for most buyers.
If you pay less than 20% for your down payment, most lenders will require borrowers to have PMI, or mortgage insurance, which increases your monthly payment amount, until you have 20% equity in your home.
Inspection: $200-$1000
Home inspections range in price depending on inspector, areas inspected, additional inspection criteria, and the market you're shopping in. This is an expense not included in your closing costs, but one you pay out of pocket.
Closing Costs: 3%-6% of the purchase price
The term closing costs is used as a catchall for several of the fees that accrue during the home loan process. These are just a few common costs included in your closing costs. Closing costs cannot be included in your loan and must be paid at your loan's closing.
Appraisal: Whether it's included in closing costs depends on your lender. The appraisal is ordered well in advance of closing and ensures your home isn't undervalued compared to the loan you're getting for it. This is a necessary fee to procure your loan.
Origination Fee: This fee helps take care of the administrative costs associated with processing a mortgage application, covering all sorts of miscellaneous expenses like couriers between the lender and title company, initial home insurance purchases, flood projections, and so on.
Application & Credit Report Fees: There is also a small fee associated with processing the application and pulling your credit report. This amount varies from lender to lender.
Title Fees: This includes title insurance and the administrative costs incurred by the title company that processes the real estate transaction. Title insurance covers the buyer and prevents the potential for claims of back taxes, liens, or conflicting wills. The title company does a deep search of all records relating to the property to prevent these sorts of issues.
Transfer Tax: Transfer taxes vary greatly depending on where you live and depending on the transaction. For example, every county in Oregon outside of Washington County does not charge a transfer tax. Furthermore, the state of Idaho does not charge a transfer tax but there are nominal fees in each county for real estate title transfers. Meanwhile Washington has statewide rules that will run most home buyers 1.10%-1.28% of their purchase price.
This is a non-exhaustive list of closing costs, and they vary based on the type of loan you're procuring, the home you're buying, whether you're moving from one state to another, and so on. One option you can discuss with your realtor is to negotiate to have the sellers cover a portion of the closing costs.
Moving: Anywhere from $200-$10,000+
Remember, you're not only buying your new home, buy you're also moving into it. The cost of moving varies greatly from person to person and move to move. If you're not renting a moving truck or hiring movers, your expenses will be relatively low, but factor in the cost of boxes, packing supplies, and even additional cleaning supplies for your new home. You should also budget for snacks and pizza for your moving helpers.
If you hire movers, or rent a moving truck that will bring your expenses up a bit. Moving companies range from as low as $2,000 to well over $10,000. This price entirely depends on how far you're moving and how much stuff you have to move. If you're doing a cross-country move, you may need to look into additional insurance for your items if you're not moving with them.
We're not rounding up all these expenses to scare you but to provide you with a realistic picture of the home-buying process. Sometimes home buyers come in only thinking about the purchase price, or the down payment. The additional costs associated with moving and closing on a home eventually pay for themselves with the increase in property value.
